Short-term rentals have seemingly exploded in recent years, largely due to the growth of services like Airbnb and VRBO. Companies like Airbnb and VRBO are providing an avenue for many property owners to take part in the fast-expanding economy of travel in the form of short-term rentals. The change in occupancy reason has led many cities and local municipalities to react with the development of regulations on short-term rentals to address impacts on the housing supply, character of a neighborhood, and local economies. For property owners, understanding and dealing with the varying regulations will be key for compliance and avoiding unnecessary fines or expensive consequences..
Understanding the Local Landscape
The first piece of advice when it comes to local short-term rental regulations is to get acquainted with the terrain of local jurisdictions. Each city or county may have its own rules. Limitations may include restrictions on the number of rental days per year, zoning laws, licensing requirements, as well as occupancy taxes. These laws can differ substantially from locality to locality, depending upon what local governments consider to be their own interests and priorities, such as housing shortages, community character, or goals around economic development.
Common Regulatory Frameworks
Zoning Laws: Many municipalities have zoning ordinances that identify the lawful locations for short-term rentals in that jurisdiction. These zoning regulations classify land use as either residential, commercial, or mixed-use. Depending on the city, short-term rentals may only be allowed in certain zoning designations, so they do not take away from the residential aspect of these neighborhoods.
Licensing and Permits: In many places, it is often required that property owners obtain a license or permit to operate as a short-term rental. These licenses require owners to fill out an application that often requires a description of the property, safety standards, and the fee! It is usually also required that you renew these licenses regularly!
Owner-Occupancy Requirements: In certain municipalities, owners must be on-site when engaged in a short-term rental business. With this measure, the goal is to minimize absentee ownership and place accountability upon the owner, typically in residential neighborhoods in order to protect and foster the spirit of a residential community.
Tax Obligations: Local taxes, similar to hotel and lodging taxes, are sometimes imposed on short-term rentals. As a property owner, it is important to understand where your tax fails are, but you will also ultimately be on the hook for returning the right amount to your city or municipality. While there are many services that help facilitate smooth running and automate certain taxes, you have to be on top of, or at least compliant with, your local tax regulations at all levels.
Limitations on Rental Days: In an effort to soak up their housing supply, some municipalities impose restrictions on the number of nights a property can be rented short-term every year. This restriction varies wildly by localities and may or may not negatively impact the potential profitability of your short-term rental plan.
Steps to Compliance
Research and Documentation: Do your research on short-term rental laws or regulations related to short-term rentals in your area. Government agency websites and forms, community websites, and council documents from your area or local governments may all have useful information. Organize these documents and put them into a folder, and save them; you will want to save any document related to permits, tax registration, and discussions with government/authorities.
Maintain Good Practices: Establish best practices to ensure compliance, such as conducting regular safety checks, maintaining guest records, and ensuring your property meets local health and safety standards. Investing in property management software can streamline these processes.
Engage with Local Community: Cultivate good relationships with neighbors and local government officials. Keeping open lines of communication may give you the ability to address or alleviate any concerns they may develop around noise, safety, or community impact, so it does not turn into a grievance or complaint that warrants government inquiry.
Stay Informed: Regulations differ and are subject to change, which is why it is so critical for you to stay informed. Subscribe to your local government newsletters, join a community meeting, and get involved in your local short-term rental association so you are aware of the legislation and the changing community attitude towards short-term rentals.
Challenges and Considerations
Municipal regulations around short-term rentals can be complicated. It can be very confusing for owners who are confronted with convoluted laws that often overlap and change frequently. Moreover, neighborhoods that are organized, either for or against short-term rentals, can create some of the same ordinances for short-term rentals, making it very confusing for owners simply due to geographic differences.
Property owners must also be mindful of how the short-term rental market impacts long-term housing markets, and whether they are still being ethically responsible, renting property out as a short-term rental, and still providing a respectable contribution to the neighborhoods and communities in which they operate. Short-term rentals that are in the right condition and are well managed can complement a community by giving individuals traveling the option to tap into the hospitality market in a way that provides some diversity and flexibility.
In order to avoid being on the bad side of short-term rentals, engage with your local law. Do your research and develop a good understanding of how to appropriately follow the local law around short-term rentals. First, to have a good knowledge of the regulatory context specific to short-term rentals, obtain the proper permits, watch for changes in the regulatory ecosystem, and actively community engagement. By following the local rules, property owners will develop a tool for tourism dollars to flow into destinations and assist with tourists’ local guest opportunities. As the industry increases, compliance will not only protect property owners from potential legal ramifications but also help continue to legitimize short-term rentals as a real revenue generator in the hospitality industry.
